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Working Paper
Monetary Policy Implementation with an Ample Supply of Reserves
Potter, Simon M.; Schulhofer-Wohl, Sam; Afonso, Gara; Martin, Antoine; Nosal, Ed; Kim, Kyungmin (2020-01-02)
Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007–09 financial crisis. We find that the optimal level of reserve supply ...
FRB Atlanta Working Paper , Paper 2020-2

Report
Why does overnight liquidity cost more than intraday liquidity?
Haslag, Joseph H.; Bhattacharya, Joydeep; Martin, Antoine (2007)
In this paper, we argue that the observed difference in the cost of intraday and overnight liquidity is part of an optimal payments system design. In our environment, the interest charged on overnight liquidity affects output, while the cost of intraday liquidity only affects the distribution of resources between money holders and non-money holders. The low cost of intraday liquidity follows from the Friedman rule, but with respect to overnight liquidity, it is optimal to deviate from the Friedman rule. The cost differential simultaneously reduces the incentive to overuse money and encourages ...
Staff Reports , Paper 281

Report
The fragility of short-term secured funding markets
von Thadden, Ernst-Ludwig; Skeie, David R.; Martin, Antoine (2013)
This paper develops a model of financial institutions that borrow short term and invest in long-term assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct liquidity, collateral, and asset liquidation constraints, which determine whether a run can occur as a result of changing market expectations. We show that the extent to which borrowers can ward off an individual run depends on whether it has sufficient liquidity, collateral, and asset liquidation capacity. These ...
Staff Reports , Paper 630

Working Paper
Monetary policy implementation frameworks: a comparative analysis
Martin, Antoine; Monnet, Cyril (2009)
The authors compare two stylized frameworks for the implementation of monetary policy. The first framework relies only on standing facilities, while the second framework relies only on open market operations. They show that the Friedman rule cannot be implemented when the central bank uses standing facilities, while it can be implemented with open market operations. For a given rate of inflation, the authors show that standing facilities unambiguously achieve higher welfare than just conducting open market operations. They conclude that elements of both frameworks should be combined. Also, ...
Working Papers , Paper 09-27

Journal Article
Settlement liquidity and monetary policy implementation—lessons from the financial crisis
Bech, Morten L.; McAndrews, James J.; Martin, Antoine (2012-03)
The U.S. dollar clearing and settlement system received little attention during the recent financial crisis, mainly because it performed reliably, processing record volumes and values of trades made in stressed financial markets. This article shows how Federal Reserve policy measures aimed at providing liquidity and stability to the financial system during and after the crisis had a major impact on settlement liquidity and thus on the efficiency of clearing and settlement system activity. The measures led to a substantial decrease in daylight overdrafts extended by the Federal Reserve and a ...
Economic Policy Review , Volume 18 , Issue Mar , Pages 3-20

Discussion Paper
The Odd Behavior of Repo Haircuts during the Financial Crisis
Copeland, Adam; Martin, Antoine (2012-09-17)
Since the financial crisis began, there’s been substantial debate on the role of haircuts in U.S. repo markets. (The haircut is the value of the collateral in excess of the value of the cash exchanged in the repo; see our blog post for more on repo markets.) In an influential paper, Gorton and Metrick show that haircuts increased rapidly during the crisis, a phenomenon they characterize as a general “run on repo.” Consequently, some policymakers and academics have considered whether regulating haircuts might help stabilize the repo markets, for example, by setting a minimum level so ...
Liberty Street Economics , Paper 20120917

Journal Article
An economic analysis of liquidity-saving mechanisms
McAndrews, James J.; Martin, Antoine (2008-09)
A recent innovation in large-value payments systems has been the design and implementation of liquidity-saving mechanisms (LSMs), tools used in conjunction with real-time gross settlement (RTGS) systems. LSMs give system participants, such as banks, an option not offered by RTGS alone: they can queue their outgoing payments. Queued payments are released if some prespecified event occurs. LSMs can reduce the amount of central bank balances necessary to operate a payments system as well as quicken settlement. This article analyzes the performance of RTGS systems with and without the addition of ...
Economic Policy Review , Volume 14 , Issue Sep , Pages 25-39

Discussion Paper
How Do Central Bank Balance Sheets Change in Times of Crisis?
Søvik, Ylva; Martin, Antoine; Eisner, Emily (2016-02-04)
The 2007-09 financial crisis, and the monetary policy response to it, have greatly increased the size of central bank balance sheets around the world. These changes were not always well understood and some were controversial. We discuss these crisis-induced changes, following yesterday’s post on the composition of central bank balance sheets in normal times, and explain the policy intentions behind some of them.
Liberty Street Economics , Paper 20160204

Discussion Paper
What Is Atomic Settlement?
Lee, Michael Junho; Martin, Antoine; Müller, Benjamin (2022-11-07)
Distributed ledger technologies (DLTs) have garnered growing interest in recent years and are making inroads into traditional finance. One purported benefit of DLTs is their ability to bring about “atomic” settlement. Indeed, several recent private sector projects (SDX, Fnality, HQLAx) aim to do just that. But what exactly is atomic settlement? In this post, we explain that atomic settlement, as it is often defined, combines two distinct properties: instant settlement and simultaneous settlement, which should be kept separate.
Liberty Street Economics , Paper 20221107

Report
Optimality of the Friedman rule in an overlapping generations model with spatial separation
Haslag, Joseph H.; Martin, Antoine (2005-10-01)
We examine models with spatial separation and limited communication that have shown some promise toward resolving the disparity between theory and practice concerning optimal monetary policy; these models suggest that the Friedman rule may not be optimal. We show that intergenerational transfers play a key role in this result, the Friedman rule is a necessary condition for an efficient allocation in equilibrium, and the Friedman rule is chosen whenever agents can implement mutually beneficial arrangements. We conclude that in order for these models to resolve the aforementioned disparity, ...
Staff Reports , Paper 225

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